December markets update

Gas market trends

In November, day-ahead gas prices fell 3.5% to average 64.5p/th, the second consecutive monthly decline

The month-ahead (December) gas contract went down 7.9% to average 68.1p/th, dropping to 64.5p/th on 26 November amid high LNG imports and forecasts of milder temperatures

All seasonal gas contracts dropped in November, down 6.6% on average

Summer 19 and winter 19 gas averaged 56.5p/th and 64.8p/th, down 8.2% and 7.0% from the previous month respectively

Summer 19 has grown 34.1% from January 2018 when it averaged 42.1p/th

The annual April 19 gas contract fell 7.5% to 60.7p/th

Key market drivers

Average demand on the National system increased month-on-month, rising from 222.2mcm/d in October to 261.6mcm/d in November. Regional gas demand also rose month-on-month, up from 127.7mcm/d in October to 182.4mcm/d in November. However, both were below the same time last year, when demand was at 276.5mcm/d and 187.0mcm/d respectively

A total of 11 LNG tankers arrived at UK terminals in November, comprising four Russian tankers, three Qatari tankers and deliveries from Peru, USA, Trinidad and Tobago, and Equatorial Guinea. This boosted available gas supplies and has weighed on winter prices amid milder temperatures

Seasonal gas contracts have been pressured by falling commodity prices, including Brent crude oil which dropped 16.4% to average $67.6/bl in November

* £ per p/therm (Annual Forward Average)

Electricity market trends

What’s been happening?

Day-ahead power dropped 3.3% to average £62.7/MWh, its second consecutive monthly decline

The contract dropped to a 14-week low of £56.9/MWh on 6 November amid lower gas prices and forecasts of higher wind generation

The month-ahead (December) power contract fell 5.7% to average £64.6/MWh

All seasonal power contracts decreased, down 3.3% on average

Summer and winter 19 dropped 5.0% and 3.7% to £55.9/MWh and £61.7/MWh respectively

The annual April 19 power contract declined 4.4% to average £58.8/MWh

Key market drivers

Day-ahead power prices followed gas prices lower, with increased wind generation further weighing on the contract. Wind accounted for 18.8% of total generation in November, compared to 17.6% in October

Average demand increased month-on-month, rising from 0.74TWh/d to 0.82TWh/d. Average peak demand also rose month-on-month, up from 39.2GW in October to 43.3GW in November

Falling EU ETS carbon prices have continued to pressure the power curve as the cost of emitting carbon is factored into the cost of power generation. Lower gas, oil and coal prices have also weighed on power contracts.

* £ per MWh (Annual Forward Average)

European gas

All tracked gas markets increased throughout the month. The largest gain was observed on the Dutch TTF, gaining 3.4p/th to end the month at 63.0p/th. NBP prices rose 1.0p/th to 62.4p/th

European gas prices rose despite high LNG send-out across NW Europe and milder than expected temperatures towards the end of November. Milder temperatures led to a fall in heating demand in Amsterdam, Berlin and Brussels as temperatures were up to 8oC above seasonal normal levels in the last week of the month.

However, prices have found support from an expected fall in temperatures in December, which are expected to fall from November’s high and remain nearer seasonal normal levels towards the end of the year

Looking ahead, gas production at Groningen is expected to drop by 75% by 2023, dropping below 6bcm/year from 2023. The announcement comes as the Dutch government is currently ahead of schedule with reducing demand for the field, which is set to shut down by 2030. Gas output at Groningen is currently at 19.4bcm/year, 65% below its level of 54.0bcm/year in 2013

European power

Dutch power prices were the only tracked European contract to rise in November, with GB, French and German power prices all experiencing a fall from the start of the month
French power prices fell £4.2/MWh to £60.8/MWh at the end of November. Prices decreased despite a series of strikes at EDF’s nuclear power plants, which cut output by up to 6GW on 13 November, and 2.2GW on 20 November

German power prices dropped £2.4/MWh to £47.1/MWh. Prices have been weighed on by high wind generation. Rising water levels in the Rhine river towards the end of the month signalled a return of demand for coal. Previously, coal stocks at Amsterdam, Rotterdam and Antwerp terminals reached a historical high of 6.9mn tonnes as record low water levels prevented the transport of the fuel to power plants

Data released from Germany’s BNA network regulator showed that the country added 310MW of renewable capacity in October, including 128MW of onshore wind and 182MW of solar PV. This brings Germany’s capacity for onshore wind and solar PV to 52.7GW and 45.3GW respectively

Prices fell in France and Germany as temperatures rose towards the end of November; forecasts predicted temperatures to remain near or slightly above seasonal normal levels into December. This was in contrast to temperatures well below seasonal normal levels in the first half of November

World oil

Brent crude oil prices dropped 16.4% to average $67.6/bl in November.

Prices dropped as concerns of a tightening market disappeared following the US granting waivers to several countries from its sanctions on Iran. Fears of an oversupplied market has been responsible for prices falling to a 13-month low of $57.6/bl on 29 November. A tenth weekly rise in US crude stocks (week ending 23 November) also pressured prices, despite support from the upcoming OPEC+ meeting in Vienna on 6 December, when the group is expected to discuss returning to supply cuts in 2019.

Coal

API 2 coal prices fell 10.3% to average $87.3/t in November.

Coal fell to a seven-month low of $83.0/t on 21 November, following a fall in Chinese demand. This followed a review of coal imports at a recent coal summit in Beijing, which led to all seaborne thermal coal imports being stopped for the remainder of the year. China’s coal generation capacity growth has also slowed since last year (15.7GW in 2018 vs 25.3GW in 2017).